Why is Company willing to Pay More for a Freelancer

This is a fact that, probably many executive staffs will find it hard to understand, unless he/she is or has been in a position to engage or hire external temporary resources.

Freelancer can come in 2 forms:

1. full-time self-employed (most of the time, not an employer)
2. someone who is moonlighting while having a day-time job

In short, a full-time self-employed freelancer will be appreciated more than moonlight freelancer, from renumeration perspective.

Why?

1. Cashflow management: When a company hires and maintains a full-time staff, the company has to evaluate cashflow management from the perspective of idle/unutilised time, if, the market or economical environment goes downhill. In many countries, the labour laws are protecting and favouring a full-time employee, and it can be tough to terminate an employee without some handsome retrenchment packages. This, itself, is also part of staff maintenance costs. In contrast, a freelancer’s service can be engaged as and when needed (and when cashflow situation allows), and easily terminated. Besides, the freelancer is also responsible for his/her provident/pension fund, medical coverage, insurance and etc.
2. Spreading business risks: Related to the #1 point above, a freelancer is responsible for how much money he/she makes, and at the same time, the loss that he/she may have to sustain too. A freelancer is taking higher risks to be self-employed. In contrast, for most companies, a staff’s monthly salary is prioritised, even when business isn’t performing as expected.
3. Commitment: This explains why a full-time self-employed is appreciated better than a moonlight freelancer. In fact, many businesses do not favour moonlight freelancer, unless there is a budget constraint. When a person is full-time self-employed, he/she is taking a much greater risk for his/her own personal cashflow management. When a freelancer isn’t paid on schedule as expected, he/she may be screwed, if he/she doesn’t have a good cash reserve to sustain or buffer this risk. “If you think no one cares about you, try missing a few loan repayments”. While I do not deny that there are good quality and highly-committed moonlight freelancers around, but the chance (from the probability perspective) of meeting someone like this, is slimmer.
4. Talent: Some freelancers are simply too good in his/her domain, and it is very hard to employ someone as good as this, into the company’s full-time employment pool. Even when you have landed onto someone like this, the company may not be able to afford this talent on full-time employment package (refer to #1 above). So, engaging this person on an adhoc basis, makes better financial sense.

Will a Freelancer be Paid as Much as a Company or Agency?

In most cases, certainly no. There is a ceiling rate to what a full-time freelancer can make.

The answer is simple. Assuming if an individual is willing to underwrite your PA insurance, would you pay this individual for your insurance coverage?